DP10012 Corporate Saving in Global Rebalancing
|Author(s):||Philippe Bacchetta, Kenza Benhima|
|Publication Date:||June 2014|
|Keyword(s):||Capital Flows, Credit Constraints, Financial Crisis, Global Imbalances|
|JEL(s):||E22, F21, F41, F44|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10012|
In this paper, we examine theoretically how corporate saving in emerging markets is contributing to global rebalancing. We consider a two-country dynamic general equilibrium model, based on Bacchetta and Benhima (2014), with a Developed and an Emerging country. Firms need to save in liquid assets to finance their production projects, especially in the Emerging country. In this context, we examine the impact of a credit crunch in the Developed country and of a growth slowdown in both countries. These three shocks imply smaller global imbalances and a positive output comovement, but have a different impact on interest rates. Contrary to common wisdom, a slowdown in the Emerging market implies a trade balance improvement in the Developed country.